The OECD defines Research and Experimental Development (R&D) as comprising creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of humanity, culture and society, and the use of this stock of knowledge to devise new applications.

R&D activity is characterised by originality. It has investigation as a primary objective, the outcome of which is new knowledge, with or without a specific practical application, or new or improved materials, products, devices, processes or services. R&D ends when work is no longer primarily investigative.

Statistics on the amount of expenditure and human resources devoted to R&D effort in the business sector are collected annually by the ABS, while comparable statistics on the government, higher education and private non-profit sectors are collected biennially.

In 2006-07, gross expenditure on R&D was $21,000 million (m) (table 26.1). This represented an increase of 31.5% over 2004-05. The business sector accounted for the largest proportion of gross expenditure on R&D in 2006-07 (57.3%), followed by higher education (25.7%). All sectors posted growth in expenditure on R&D since 2004-05, with the highest percentage growth reported for the business sector (38.7%) and lowest for the government sector (18.8%).

In 2006-07, human resources devoted to R&D totalled 125,771 person-years of effort, an increase of 8.2% since 2004-05. The majority of human resources devoted to R&D came from the higher education sector (46.8%), followed by the business sector (36.6%).

During 2007-08, business expenditure on R&D in Australia was $14,380m, which represented an increase of 14.6% from 2006-07, in current prices. After adjusting for price changes, the growth in expenditure (in volume terms) was 9.1% for the same period.

In 2007-08, the largest industry contributions to business expenditure on R&D were Manufacturing ($4,305m), Mining ($3,283m) and Professional, scientific and technical services ($2,230m) (graph 26.2). Of all industries, Mining and Manufacturing reported the largest absolute growth from 2006-07, increasing their expenditure on R&D by 18.4% and 12.2% respectively.

Funding of R&D for the business sector in 2007-08 was largely from businesses within the sector: 93.1% coming from businesses' own funds and 2.4% from other businesses. Government funding accounted for 3.0% (mainly Commonwealth Government), while a further 1.3% of funding was derived from overseas. Industries with the largest amounts of funding sourced from government were Professional, scientific and technical services ($223m) and Manufacturing ($119m).

The ABS's socio-economic objective (SEO) classification defines the main areas of Australian economic and social activity to which the results of research programs are applied. In short, it describes the purpose of the research, i.e., the broad socio-economic areas of expected benefit rather than the immediate objectives of the research.

The largest amounts of R&D expenditure for 2007-08 occurred on the following SEOs: Manufacturing, which accounted for 31.4% of total expenditure, Mineral resources (excluding energy resources), which accounted for a further 14.3% and Energy (14.1%).

In 2007-08, the largest expenditure on R&D occurred in the following fields of research: Engineering which accounted for $7,921m or 55.1% and Information and computing sciences which accounted for $3,678m or 25.6%.

Human resources devoted to R&D in 2007-08 totalled 49,114 person-years of effort, an increase of 6.0% over 2006-07.

26.3 Business sector expenditure on R&D, Proportion of GDP

Business expenditure on R&D in 2007-08 was 1.27% of Australia's gross domestic product (GDP), an increase from 1.20% in the previous year (graph 26.3). This places Australia's business expenditure on R&D at 14th for the GDP ratio when compared with other OECD countries. Australia remains below the OECD average of 1.59% (table 26.4).

In 2006, higher education sector expenditure on R&D in Australia was $5,404m. This represented an increase on 2004 expenditure of 24.9% in current prices (15.1% in volume terms). Higher education expenditure on R&D as a proportion of GDP increased from 0.48% in 2004 to 0.52% in 2006 (graph 26.5).

In 2006, the largest amount of higher education R&D expenditure was devoted to the research field of Medical and health sciences (26.9%). This was followed by Engineering and technology (11.0%), and Biological sciences (10.4%). Funding for the R&D was primarily sourced from general university funds ($3,199.5m or 59.2%) and Australian competitive research grants ($979.8m or 18.1%).

Australian higher education organisations devoted a total of 58,810 person-years of effort to R&D in 2006, up 6.5% from 2004.

Government sector

Expenditure by government sector organisations on R&D in 2006-07 was $2,954.1m. This represented an increase of 18.8% in current prices over 2004-05, and 10.2% in volume terms. The largest amounts of expenditure on R&D occurred in the research fields of Agriculture, veterinary and environmental science ($849.9m), Engineering and technology ($493.4m) and Medical and health sciences ($379.6m). Together, these three research fields accounted for over half of the total Government expenditure on R&D in 2006-07.

In 2006-07, expenditure by government organisations on R&D as a proportion of GDP remained unchanged from 2004-05 at 0.28% (graph 26.6). This places Australia in 9th position in relation to other OECD countries, and above the average for all OECD countries of 0.26%.

26.6 Government sector expenditure on R&D, ^Proportion of GDP

Human resources devoted to R&D in 2006-07, in the government sector, totalled 16,338 person-years of effort, down 2% from 2004-05.

Private non-profit sector

Expenditure on R&D by private non-profit sector organisations in 2006-07 was $606.3m, an increase of 26.5% in current prices over 2004-05, or 15.8% in volume terms. The largest amount of R&D expenditure in the private non-profit sector was devoted to the research field of Medical and health sciences ($457.9m) which comprised three quarters of total R&D expenditure in this sector.

A total of 4,596 person-years of effort was devoted to R&D by private non-profit organisations in 2006-07. This represented an increase of 19.5% since 2004-05.